The first big decision in a Business Central project is where it will run: hosted by Microsoft as SaaS, or on infrastructure you control. Both are the same product family, and both are customized with AL extensions, but they differ in who does the operational work, how updates arrive and what integrations are practical.
What each model means
SaaS (Business Central online) runs on Microsoft's cloud. Microsoft operates the servers, database, backups and platform updates. You manage the application through the Business Central administration center: environments, update windows, extensions and users.
On-premises runs on servers you operate, either in your own data centre or on virtual machines you manage in a hosting provider or cloud. You install the software, apply updates, manage SQL Server, monitor and back up the system, and secure it.
Comparison
| Factor | SaaS | On-premises |
|---|---|---|
| Infrastructure | Operated by Microsoft | Operated by you or your host |
| Updates | Continuous, with release waves in spring and autumn; you have some control over timing | You choose when to apply cumulative updates and major versions, within the support lifecycle |
| Customization | AL extensions only, with restrictions on what extensions can do | AL extensions, with more freedom around the server environment |
| Database access | No direct SQL access | Direct SQL access is possible |
| Integration | Public APIs with OAuth 2.0 from anywhere; connecting to internal systems needs a secure path | Simple access to systems on your own network |
| Sandboxes | Created and managed in the admin center | You build and maintain test environments |
| Scaling and availability | Handled by the platform | Your design and your responsibility |
| Skills you need in-house | Business Central administration | Business Central administration plus SQL, Windows, networking, security |
Reasons companies choose SaaS
- No servers to maintain, patch or back up.
- Regular updates that add features and security fixes without a large upgrade project.
- Native fit with Power BI, Power Platform and Microsoft 365.
- Easy sandbox environments for testing and training.
Reasons companies stay on-premises
- Regulatory or contractual constraints on where data may live and who may operate it.
- Tight integration with on-site systems such as machine controllers or legacy databases that cannot be exposed.
- A need to control exactly when updates are applied.
- Existing infrastructure investment and staff capable of running it.
These reasons are legitimate, but they should be tested. Many "we need on-premises" assumptions dissolve when the specific constraint is examined, and some SaaS "blockers" have straightforward answers through middleware.
Extensions behave differently
Both models use extensions, but SaaS is stricter. Extensions running in SaaS cannot use certain server-side capabilities, and outbound HTTP calls from an extension must be explicitly allowed for that extension. If you plan to move from on-premises to SaaS later, write extensions with SaaS constraints in mind from the start. It is far cheaper than retrofitting.
Questions that decide it
- Are there legal or contractual reasons the system cannot run in Microsoft's cloud, and can they be confirmed in writing?
- Which internal systems must integrate, and can they be reached securely from a cloud service?
- Who will run the servers, backups and security, and what does that cost over five years?
- How comfortable is the business with regular, scheduled updates?
- Do you need direct database access for reporting, and could APIs or a data store meet the need instead?
Moving later
Choosing one does not lock you in permanently. Microsoft provides cloud migration tooling to move data from on-premises Business Central to SaaS, and extensions and integrations must be reviewed for compatibility when you do. If you are also coming from Dynamics NAV, see NAV to Business Central migration. For help weighing the decision, our consulting team can review your constraints, and the upgrade and support services apply to either model.
Key takeaways
- SaaS trades control for lower operational effort and continuous updates.
- On-premises gives control over infrastructure and update timing but makes you responsible for servers, backups and security.
- Customization is done through extensions in both models, but SaaS is stricter about what extensions may do.
- Choose based on integration needs, regulatory constraints and internal IT capacity, not on habit.
Frequently asked questions
Can we move from on-premises to SaaS later?
Yes. Microsoft provides cloud migration tooling, and extensions and integrations need to be reviewed for SaaS compatibility as part of planning.
Central Era TechnologiesWritten by the consultants and developers at Central Era Technologies, who work with Business Central, Dynamics 365 Finance and Operations, Power Platform and Azure. To credit a named author, add one here.